Law Commission publishes revised Bill on digital assets as personal property
On 30 Jul 2024, the Law Commission published a draft Bill on digital assets as personal property. The Bill provides that digital assets are not prevented from being treated as property merely because they do not fall within the existing legal categories of property. Neither of these two categories – choses in action and choses in possession – are appropriate for some digital assets. This minor change, if enacted, is expected to boost the UK’s attractiveness for the crypto ecosystem by removing an obstacle to the continued development of principled legal rules for digital assets in English law.
A supplemental report released by the Law Commission on the same day discusses responses to a targeted consultation on the draft Bill earlier this year. A key question was whether new legislation was required at all. Recent cases have started to fashion a law of property applicable to digital assets in order to provide proprietary relief when they are stolen and to ascribe duties to participants in the digital economy. The Law Commission considered that a short clarification would still be useful to direct the development of English law but sought confirmation of this view in the consultation.
Norton Rose Fulbright LLP submitted a response to this consultation, quoted by the Law Commission, in which we argued in favour of new legislation. We pointed out that a new category of personal property “directs the judiciary to develop rules relating to digital assets that are not simply incremental offshoots of rules applicable to things in action or things in possession, but take account of the unique characteristics of digital assets” (quoted in Supplemental Report, paragraph 2.56). And we characterised the potential benefits of the Bill: “If the rules developed in relation to digital assets are inappropriate, digital asset platforms are less likely to select English law or to be based in the United Kingdom. The digital asset ecosystem, as with any property-based section of the economy, is dependent on clear underlying legal rules and is threatened without them. It is also a highly mobile sector – the certainty and professionalism of the English legal system is currently a key competitive advantage” (quoted in Supplemental Report, paragraph 4.9).
The Law Commission has introduced a slight amendment to the draft Bill following the targeted consultation. The previous wording could be interpreted as widening the scope of what things might attract property rights. This led to speculation that, for instance, pure information might be granted the status of property by the Bill. The new wording makes clear that this is not the case. The new draft of the Bill now avoids setting out what the limits are on the existing categories, but enables digital assets to be placed in a third category where appropriate.
Enacting the draft Bill proposed by the Law Commission would be a significant step towards promoting English law and the United Kingdom as a base for the digital asset economy. As a short, technology-agnostic piece of legislation, it will create clarity without limiting the capacity to absorb innovation that is a hallmark of the English common law.